13 September 2019

Can Draghi's cash injection stave off recession?

Shortly before the end of Mario Draghi's term as ECB president the bank has resumed its bond-buying programme and kept its benchmark interest rate at zero percent. Draghi called on euro states to invest in order to prevent a recession. While some commentators are happy about the stimulus measures, others point to the negative effects of the loose monetary policy.

Now is the time for investment

De Morgen is delighted that Draghi is encouraging governments to spend:

“Our economy and energy sector must become greener. ... This will require enormous efforts, and what better time for this than now, when states can borrow money for free for 30 years? ... Our public infrastructure is crying out for modernisation. From rotting concrete bridges and roads to antiquated hospitals, schools and social housing. ... International cooperation needs more money to stabilise the southern economies and reform the chaotic migration system to promote labour mobility, which has a win-win effect. And with targeted state support, public sector employees - caregivers, teachers, police officers, soldiers - could finally receive good pay for their work.”

Germany must end its austerity policy

After this move by the ECB above all the government in Berlin must take action to boost Europe's economy, the Financial Times argues:

“There has rarely been a better time for Europe to invest in its future. Inflation has disappeared. Germany is awash with fiscal surpluses, federal, state and municipal. The cost of borrowing is zero. Were recession to provoke a full-blown eurozone crisis, Berlin would of course act. In those circumstances the politics would be much easier to manage. But do not expect Germany to dispatch the fire brigade before the flames have fully taken hold.”

Poison for economies

The ECB's monetary policy will have dramatic consequences, warns the Neue Zürcher Zeitung:

“Once again, a look at Europe's monetary policy brings Paracelsus to mind. The Swiss philosopher of nature realized as early as the sixteenth century that it's the dose that decides whether a remedy turns into a poison. A little painkiller pill can have a beneficial effect, but taking the whole packet can be fatal. The situation is similar with the Eurozone's monetary policy. As the treatment becomes more aggressive, its beneficial effects are visibly decreasing; soon the only ones to benefit will be investors, property owners and debtors, while the economy as a whole suffers. The medication that helped initially is turning into poison.”

Undemocratic redistribution

Ten years of the zero interest rate policy under Mario Draghi have made the rich richer and the poor poorer, Christian Ortner rails in the Wiener Zeitung:

“The crazy thing is that this large-scale redistribution isn't in the least due to a democratic process, but to a bureaucratic decision - by the top bodies in the ECB which aren't accoutable to any parliament. It really is remarkable: in a democracy it goes without saying that even the tiniest tax hike requires a vote in parliament, yet no democratically legitimated body has ever voted or even discussed the ECB's huge redistribution policy. It was passed by decree, simply because the ECB can do just that.”